Here are some trade themes where we see value, as of September 17, 2017 (with a 2+ week delay):

Value on the Curve: (active CA trades):

  1. *** Buy cheap crisis protection. A combination of N Korea tensions, increased Trump headline risk, and general headline risk could cause a large rally.
  2. *** The term structure of ED-FF looks too too flat behind EDH8, and between EDU7-Z7. Playing for reflation in the ED-FF spread curve behind EDH8 seems attractive, fundamentally and for roll.
  3. *** Look to buy cheap flies in the valley of the fly curve. Favorable roll, discounted stimulus prospects and the Fed stopping balance sheet reinvestments should keep these supported.
  4. ** EURIBOR: The reflation trade looks cheap there. Europe is gaining some momentum and a positive-roll look at reflation seems attractive.
  5. ** Look at cheap bearish tail trades. The curve is flat, we have tapering ahead and the long end could really sell off. There will be more Treasury issuance.
  6. ** Buy ED 2018 meetings (relatively). I think we may have seen the bottom in Retail sales and inflation may be close to bottoming (after PCE on Friday).
  7. * Look for opportunities on the 6mo fly curve. Some structures should move on a further rally but move less on a selloff.
  8. * Look to establish long double fly positions at the back of the curve. You get 2x the positive roll.
  9. * Look at calendar spread structures in the purples for roll. This is also great insurance against the 30 years from leading the puking, and the deficit is only going to increase.

Value on the Horizon: (“C” trades):

  • Look for short Euribor vs Eurodollar trades. After the Fed taper, the next potential large move in rates will be in Europe.
  • When could Kuroda say anything bearish? Surely he doesn’t intend to take the entire other side of the global bond selloff?
  • When does the Fed start going to a point target? This could occur before the end of 2018.

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